THE POWER OF CO-OP MEMBERSHIP

Membership Everyday Value The Power of Electricity Connections Working Together to Use Energy Wisely

ThE POWER Of CO-OP MEMbERshiP. Did you know you help

power a community? Kootenai Electric Cooperative belongs to

the members it serves. Electric cooperatives touch the lives of

members every moment of every day, in both big and small ways.

We are dedicated to providing reliable, affordable electricity and

working for the benefit of the communities we serve.

2013 was a notable year for KEC as we marked the 75th year of

providing service to our members. The Cooperative completed

the year financially strong with revenues of $35,869,811 and

margins of $3,478,436.

KEC closed more than $10 million in capital projects aimed at

extending new service to members, improving service to existing

members and replacing equipment determined to be end of life.

Among these capital projects was the construction of the Julia

Street Substation (Coeur d’Alene) and the groundbreaking of

the Beck Road Substation (Post Falls). Both provide additional

capacity to serve new load in the area surrounding them and

increase service reliability to members. Each cost approximately

$3.5 million to construct.

Mid-year, KEC notified members of the need for a 9.6% rate

increase driven by three main issues: the increased cost of

wholesale power from the Bonneville Power Administration, the

rising cost of building lines and substations to provide reliable

power and higher internal costs. We understand the importance

of keeping rates low and controlling our costs. Providing low

cost power to you is something we are proud of and work very

hard to protect.

Thank you for your membership in Kootenai Electric Cooperative

and we look forward to another year of serving you.

EXECUTiVE MEssAGE

Douglas A. Elliott William R. swickGeneral Manager Board Chair

EVERY MEMbER hAs A VOiCE.MAKE sURE YOURs is hEARD.As an electric co-op member, you have a say

in how the co-op is run. The KEC Board of Directors determines

policy and direction of the Cooperative. The seven-member Board

is elected by the KEC membership and spends approximately

60 days a year on Cooperative-related activities. Thank you to

the Board for their dedication and service.

MEMbERshiP

Photo above (front to back, left to right): Jim Robbins; Douglas Elliott, General Manager; Terry LaLiberte, Vice Chair; Roger Tinkey, secretary; Ron bockstruck; Ed Gossett; Dave Pratt, Audit Committee Chair; and bill swick, Chair.

WhAT’s ThE POWER Of CO-OP MEMbERshiP?

KEC brings value to the lives of our members every day

and these are just a few of the ways we do that:

• Membership—KEC belongs to the members we

serve who have a say in how the Cooperative

is run.

• Everyday value—Electricity is a great value,

especially when you consider Idaho has some

of the lowest electric rates in the nation.

• The power of electricity—Electricity is essential

to everyday life and often taken for granted. We

are doing all we can to keep power reliable and

affordable.

• Connections—Co-op membership means

more than just affordable electricity. Member

benefits include the Co-op Connections® Card

program and capital credits.

• Working together to use energy wisely—We all

have a responsibility to use energy wisely. We

offer a variety of tools and resources to help.

sYsTEM iMPROVEMENTs

We completed several important capital construction projects

in our 4-year construction work plan. The goal of these projects

was to rebuild and/or upgrade lines to improve service capacity,

reliability and safety. Some of the more notable projects

included upgrading seven miles of line in the Conklin Park

area, 1.7 miles of line in the Plummer area and 1.3 miles of

line in the Stateline area. The completion of these projects

required an investment of nearly $3 million and will continue

to serve the Cooperative for years to come.

MAiNTENANCE AND RELiAbiLiTY

In addition to upgrading existing lines and constructing

new ones, KEC invested in maintaining those already in

service. Annually, KEC invests approximately $750,000 in

our Vegetation Management Program. This program protects

the reliability of our electric system by focusing on the

identification and removal of hazardous trees, as well as the

pruning of vegetation that interferes with our distribution lines.

ENERGY EffiCiENCY PROGRAMs

Energy efficiency remains an organizational objective and we

offer a variety of tools and resources to help members use

energy wisely. Through our energy conservation programs,

$615,339 was paid in 3,071 energy efficiency rebates to

members. This accounts for 2,617,450 kilowatt-hours (kWh)

in annual energy savings.

In addition, 440 members took advantage of KEC’s SnapShot

Home Energy Audit. Members participating in this program

receive a report outlining the conservation measures most needed

in their homes. This audit is offered to members at no cost.

MEMbER sERViCEs

Our Member Services Department also rolled out SmartHub,

KEC’s new online account access for members. Not only does

it give members a user-friendly way to manage their KEC

account and review electric use while online, there is also an

app available for mobile devices (smartphones or tablets). We

also redesigned our website (www.kec.com) to make it more

member-friendly. We hope you find these tools both helpful

and simple to use.

YEAR iN REViEW

Residential Rates for All UtilitiesU S Average 11 7¢ per kWh

MN

ME14.83¢MT

10.05¢ND

8.62¢

WA8.61¢

OR

U.S. Average 11.7¢ per kWh

NJ 15 24¢RI 13.07¢

CT 17.83¢

VT19.97¢

NY17.26¢

MA 13.79¢NH16¢

MI13.99¢

MN11.04¢

ID8.47¢ SD

9.92¢

WI13.24¢

WY10.02¢

OR9.84¢

NV12.44¢

MD 12.41¢

DC 12.2¢

DE 13.61¢NJ 15.24¢

VA WV

9.85¢

PA12.68¢

CA15.07¢

CO11.32¢

IL11.34¢

IN10.31¢

IA10.37¢

KS MO

NE9.39¢ OH

11.58¢UT9.71¢

KY

OK9.48¢

NC10.44¢

10.74¢

SC11.51¢

10.88¢MO

9.11¢

NMAZ

10.7¢

KY9.33¢

AR9 46¢

TN10.3¢

LA8 38¢

GA10.11¢

AL10.96¢

MS10.57¢

10.71¢

TX11.17¢

9.46¢

El t i P M thl8.38¢

FL11.9¢

Strategic Analysis Unit January 2013

Electric Power Monthly

http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_aAverage Retail Price of Electricity to Ultimate Customers by End‐Use Sector Residential

Over 12¢ (18)

© NRECA, all rights reserved. May not be copied, reprinted, published, translated, hosted or otherwise distributed by any means without explicit permission.

¢ ( )9.5¢ - 12.0¢ (24)Under 9.5¢ (9)

EVERYDAY VALUE

ELECTRiCiTY REMAiNs A GOOD VALUE iN ThE NORThWEsT

We’re pretty fortunate in North Idaho. The power we purchase

from the Bonneville Power Administration (BPA) comes

primarily from the Federal Columbia River Power System. As

an electric cooperative, we have the coveted right to purchase

power from the federal dams that harness its immense power.

We pass that benefit along to you, our members. The map below

shows just how valuable that benefit is. You’ll see that Idaho’s

electric rates are among the very lowest in the nation.

Something else to consider: in the past 30 years, the amount

of residential electricity used by appliances and electronics has

increased from 17% to 31%. More homes than ever use major

appliances and central air conditioning. Computers, DVRs and

multiple televisions have become commonplace.

Clearly, our appetite for electricity shows no signs of slowing

down. So the next time you flip a switch, use your toaster or run

your washing machine, remember the value electricity holds.

REsiDENTiAL RATEs fOR ALL UTiLiTiEsU.s. AVERAGE 11.9¢

KEC is looking out for you by working

to keep electric bills affordable,

controlling costs through innovation,

and putting you, our members, first.

This discussion and analysis is designed to provide an overview

of Kootenai Electric Cooperative’s financial activities for the year

ended December 31, 2013. This supplementary information

should be read in conjunction with the Cooperative’s audited

financial statements and footnote disclosures to the financial

statements. The financial presentation included in this report

is summary information only, derived from the Cooperative’s

audited financial statements. The Cooperative’s audited

financial statements and footnote disclosures, including the

auditor’s opinion, are available for review at the Cooperative’s

offices. For the years ended December 31, 2012 and 2013, the

annual audit was conducted by Moss Adams, LLP.

KEC is a member-owned electric utility incorporated in 1938

to serve selected rural areas of North Idaho and Eastern

Washington. The Cooperative is governed by an independent

seven-member elected board of directors.

During 2013, operating revenues increased by $1.9 million

or 5.6% over the prior year for a total of $35.9 million. The

increase in revenue, 2013 over 2012, is driven primarily by

our growth in members, a new rate structure taking effect with

November billings and the weather throughout the year.

Our cost of power increased in 2013, by $1.5 million, to a total

of $16.3 million. Over 96% of our power cost is the result of the

energy we purchase from BPA, with the balance representing

the cost of operating our Fighting Creek landfill gas generating

plant. As a result of the BPA rate increase effective October

2013, we saw our cost of purchased power increase just over

5% on an annualized basis.

The cost of providing electric service to our members, which

includes operations and maintenance costs, sales and member

account costs, general and administrative costs, depreciation,

interest and taxes, increased by $501 thousand in 2013,

or 3.1% over the prior year. This increase in expense levels

was influenced mostly by an increase in activity related to our

conservation program, depreciation expense related to new

plant placed in service, consulting and legal fees associated

with various regulatory proceedings and the mix of capital

and maintenance work activity within our Operations and

Engineering work groups. Margins decreased slightly by $43.0

thousand or 1.2% over the prior year for a total of $3.5 million.

MANAGEMENT DisCUssiON & ANALYsis

CONTiNUED ON NEXT PAGE...

ThE POWER Of ELECTRiCiTY

Terence D. Robinson CPA, MbAManager of finance & Accounting/CfO

Other elements of our financial performance during 2013

include:

• Introduced a new rate design and rates during November 2013.

• New connects were 525 in 2013 compared to 327 in 2012.

• Completed 21.3 miles of new distribution line.

• Served 23,812 meters at year end 2013.

• Demonstrated ongoing strength in our key financial ratios.

• Completed the Julia Street Substation.

• Made a $3.7 million prepayment to our employee pension

plan resulting in lower contributions in future years.

• Retired $1.1 million in member capital credits during 2013.

...MANAGEMENT DisCUssiON AND ANALYsis CONTiNUED.

THE CALM BEFORE THE STORM IS NOTHING COMPARED TO THE CALM WE RESTORE AFTERWARDS.

KEC’s line crews are committed to helping members

weather any storm – before, during and after. We’d like

to recognize all electric line crews for the services they

perform around the clock in dangerous conditions to

keep the power on and protect the public’s safety.

fiNANCiAL sTATEMENTs

Number ofMeters

OperatingRevenue

Miles of Line

kWh sold(millions)

2013 23,812 $35,869,810 1,999 425.4

2012 23,677 $33,917,037 1,978 412.6

2011 22,999 $32,769,696 1,965 427.6

2010 22,916 $31,363,521 1,933 404.0

2009 22,789 $30,246,021 1,910 422.0

AT A GLANCE: WHERE WE’VE BEEN AND WHERE WE ARE NOW

2013 2012

NONCURRENT AssETs:

net utility plant $119,357,770 $114,947,420

investments 1,171,594 1,149,254

notes receivable 427,433 471,694

total noncurrent assets 120,956,797 116,568,368

CURRENT AssETs:

cash and cash equivalents 283,829 1,265,711

accounts receivable, net 5,065,528 4,137,059

materials & supplies inventory 3,990,641 4,069,590

other current assets 296,353 311,879

total current assets 9,636,351 9,784,239

deferred charges 3,694,204 127,893

total assets $134,287,352 $126,480,500

AssETs

2013 2012

OPERATiNG REVENUE: $35,869,811 $33,917,037

OPERATiNG EXPENsEs:

cost of poWer 16,300,616 14,833,412

distribution eXpense—operations 1,434,422 1,684,913

distribution eXpense—maintenance 1,819,694 1,881,095

consumer accounts eXpense 1,193,901 1,184,515

sales eXpense 695,549 376,498

administration & general eXpense 3,414,352 3,192,910

depreciation & amortiZation eXpense 4,179,884 3,990,820

taX eXpense 682,492 665,969

total operating eXpenses 29,720,910 27,810,132

operating margins before interest eXpense 6,148,901 6,106.905

interest eXpense 3,228,628 3,170,877

net operating margins 2,920,273 2,936,028

NON-OPERATiNG MARGiNs:

interest income 238,897 250,154

patronage capital credits from other cooperatives 66,555 111,250

other non-operating margins 252,711 223,999

total non-operating margins 558,163 585,403

net margins $3,478,436 $3,521,431

COMPREhENsiVE iNCOME:

net margins $3,478,436 $3,521,431

other comprehensive income (loss) (313,500) (463,300)

total comprehensive income $3,164,936 $3,058,131

sTATEMENTs Of OPERATiONs & COMPREhENsiVE iNCOME

fiNANCiAL sTATEMENTs

Purchasing & Producing Power$45

Operating the Cooperative$45

Capital Credit Allocations$10

2013 2012

MEMbERs’ EqUiTY:

patronage capital $40,836,432 $38,454,401

other equities 6,507,883 5,093,243

accumulated other comprehensive income 145,300 458,800

total members’ equity 47,489,615 44,006,444

NON-CURRENT LiAbiLiTiEs:

capital lease, less current portion 215,007

long-term debt, due after one year 74,659,230 70,482,330

asset retirement obligation 142,000 142,000

postretirement benefit obligation, due after one year 2,820,000 2,830,800

total noncurrent liabilities 77,836,237 73,455,130

CURRENT LiAbiLiTiEs:

current portion of capital lease 19,395

long-term debt, due Within one year 2,661,870 2,275,834

postretirement benefit obligation, due Within one year 345,700 223,800

accounts payable 2,838,008 2,238,028

interest payable 46,688 48,594

patronage capital payable 966,421 2,162,701

consumer deposits 465,595 513,766

vacation payable 530,882 475,668

taXes payable 672,761 653,426

other current liabilities 414,180 427,109

total current liabilities 8,961,500 9,018,926

total liabilities 86,797,737 82,474,056

total members’ equity & liabilities $134,287,352 $126,480,500

EqUiTiEs & LiAbiLiTiEs WhERE DOEs YOUR MONEY GO?

ThAT's ThE POWER Of CO-OP MEMbERshiP

The Co-op Connections® Card is absolutely free for KEC

members. Use your card to take advantage of these savings:

• Local and National Discounts: Great discounts nationally

and from businesses in your community, including dining,

shopping, automotive and much more. Visit www.kec.com

for a list of discounts and show your card to start saving.

• Cash back Mall: Earn cash back on purchases of more than

300,000,000 products from more than 4,000 leading

online merchants.

The following Healthy Savings Discounts:

• Prescription Discount: 10% to 85% discounts on most

prescriptions at over 60,000 participating pharmacies

including Costco, Walgreens, Walmart and more.

• Dental Discount: 20% to 40% discounts on dental care

such as cleanings, x-rays, root canals, etc.

• Vision Discount: 10% to 60% discounts on eyeglasses,

contact lenses, eye exams and LASIK.

• hearing Aid Discount: 35% to 60% savings on hearing aids.

Last October I needed a crown and didn’t have dental insurance,

so I knew the bill would be high. I asked my husband, “What

about the KEC discount card?” He said, “It doesn’t hurt to ask.”

So I did, and Riverstone Dental Care gave me more than $500

off my bill! Thank you, KEC. I love my Co-op Connections® Card.

Janet Parker, KEC Member, spirit Lake

CONNECTiONs

WE ARE ALL UP TO ThE ChALLENGE. When we work together,

using energy wisely and saving money go hand in hand.

Why is using energy wisely so important? The power we purchase

from BPA primarily comes from the Federal hydro facilities that

operate in the Columbia River Basin. These hydro facilities have

aged and the demand for electricity has grown. In short, more

electricity is being used in the Pacific Northwest than can be

produced by these facilities. To meet this growing demand, we

must find ways to reduce the amount of power we consume. For

this reason, BPA mandates conservation and, to fund it, they

add a premium to the rates we pay to them. BPA makes the

premium available to KEC in the form of a budget for energy

conservation rebates and incentives.

KEC also recognizes that energy conservation is the best way

for us to reduce how much power we buy from BPA and the

best way for our members to reduce their power bills. For

these reasons, we invest in energy conservation by self-funding

half of our energy conservation budget and by educating our

membership on ways they can conserve. Electricity saved

through conservation costs about 45% less than the power

KEC purchases from BPA. These savings really add up for our

members and the Pacific Northwest. KEC offers the following

rebates and incentives:

• Appliances

• Refrigerator/Freezer Recycling

• Heat Pump Systems

• Windows and Patio Doors

• Insulation

• Duct Sealing

• Energy Star Homes

• Various Commercial and Industrial Incentives

• Home Energy Audits

KEC also sells a variety of products to help you save energy,

including CFL and LED light bulbs, Marathon Water Heaters,

Convectair Heaters and In-Home Displays. Give us a call or visit

our office to learn more.

WORKiNG TOGEThER TO UsE ENERGY WisELY

Kootenai Electric Cooperative, inc.

2451 W. Dakota Ave.

Hayden, ID 83835

(208) 765-1200

www.kec.com

KEC.com

fiND Us ON: facebook.com/KootenaiElectric

@KootenaiEC

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